Report Dials Back Concerns Over Funding for Medicare

Medicare's trustees delivered a rare bit of good news, saying spending is growing more slowly and the program's finances are on a stronger footing than believed a year ago.

An annual report issued Friday said the primary Medicare trust fund that pays hospital bills and associated costs can continue paying full benefits through 2026, two years later than the trustees projected last year.

The report plays into the political discussion over the government-run health-care plan for seniors and the disabled. It also adds fuel to a broader debate about the reasons for a recent slowdown in the growth of health costs, both in Medicare and private plans.

Medicare, the large government-run health care program for seniors and the disabled, is on a stronger financial footing than believed last year. Jerry Seib has a look at the new numbers on Lunch Break. Photo: AP.

Despite its more-optimistic forecasts for the next few years, the report said Medicare's long-term growth remains on an unsustainable path. The program's hospital fund had costs that exceeded its income last year.

"The fact that spending is slowing in Medicare shows you something is going on, more than the recession. Whether it's permanent or not is really hard to answer," said Michael Chernew, a Harvard University health-policy professor.

The report pointed to lower projected spending on skilled-nursing facilities and reduced payments for Medicare benefits provided to some seniors through Medicare Advantage plans.

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Medicare spending on hospital services, doctor care and prescription drugs doubled over the last decade but growth has been relatively restrained in the last three years. In 2012, the program spent a total of $574 billion, up 4.6% from a year earlier. That compares with annual growth rates of 8% or more for much of the previous decade.

The debate about the slowing pace of health-care cost growth centers on whether the phenomenon is mainly a result of the economic downturn that started in 2008—which would suggest that it may soon be reversed—or stems from changes in the way care is delivered.

Some of those changes were prescribed in the 2010 health-care law, while others have been developing because of pressures from private payers frustrated at ever-rising health costs.

Reductions in hospital spending could be behind some of the slowdown in specialized nursing-facility costs, said Greg Crist, a spokesman for the American Health Care Association, a nursing-home industry group.

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"While we have yet to see the hard data, some of our members saw a reduced level of hospital discharges to skilled nursing centers," he said. "We're also seeing a reduced number of hospital readmissions, something we have been focused on intently this past year."

National spending on health care across the board has also slowed in recent years, with 3.9% growth in 2009, 2010 and 2011. But government number crunchers have warned that they expect Medicare spending, and health-care spending more generally, to pick up again in subsequent years.

The Centers for Medicare and Medicaid Services, the federal agency overseeing the programs, has warned that between 2015 and 2021, health spending is set to grow at an average annual rate of 6.2% as a result of the aging of the population, expansion of access to care under the federal health-care law, and an improvement in economic conditions. Actuaries have said the growth may take place even if care becomes more efficient.

"This report confirms what Republicans have been saying for some time—doing nothing is not an option," said Rep. Kevin Brady, (R., Texas), chairman of a House health subcommittee. "Seniors deserve to know that Medicare is there for the long haul," he said.

One of the most hotly contested issues is the impact of the 2010 federal health-care law on the Medicare cost trajectory. Cuts to insurers for Medicare Advantage plans are part of the law, as are a host of other reductions, mostly to providers, estimated at around $716 billion over a decade.

Supporters of the law have argued that those cuts make the program more sustainable over time, and say the law also includes incentives to providers to further encourage them to coordinate care.

Critics, including many Republicans, say the cuts are being used to fund other aspects of the health-care overhaul and should be redirected specifically into the Medicare program to improve its solvency.

Americans qualify for Medicare benefits when they turn 65, a birthday that close to 10,000 people celebrate every day. Some 50.7 million people were enrolled in the program in 2012, trustees said Friday, up from 48.7 million in 2011.

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